Wall Street closed lower on Friday as geopolitical tensions in the Middle East escalated following a U.S.-Israeli strike on Iran that killed Supreme Leader Ayatollah Ali Khamenei. The S&P 500 fell 1.26% to close near 6,865, while the Dow Jones Industrial Average dropped 1.05% or 521 points to 48,978. Nasdaq futures slid 0.9%, reflecting broader risk-off sentiment. European indices followed suit, with the FTSE down 1.2% and the DAX off 0.8%. Asian markets showed mixed results earlier in the session, but Nikkei futures declined 0.7% amid the oil shock.

Equity markets reacted to the Iran developments, which included reports of disrupted oil flows through the Strait of Hormuz, impacting 21% of global petroleum transit. The VIX volatility index rose 6.6% to 19.86, signaling increased uncertainty.

Sector performance diverged sharply: energy stocks gained 2.3% on higher crude prices, while technology and financials led declines at 1.7% and 2.4%, respectively. Small-cap indices underperformed large caps by 0.5 percentage points, extending recent trends.

Bond markets saw inflows as yields compressed. The 10-year U.S. Treasury yield fell 4 basis points to 3.97%, marking its lowest close since late November. Two-year yields eased 2 basis points to 3.85%, flattening the curve slightly to 12 basis points.

Corporate bond spreads widened 3 basis points to 95 over Treasuries, indicating modest credit risk repricing amid the conflict news.

Currencies shifted toward safe havens. The U.S. dollar index dipped 0.2% to 97.58. USD/CHF weakened 0.2% to 0.7673, while USD/JPY fell 0.26% to 155.65. EUR/USD rose 0.34% to 1.1776, and GBP/USD gained 0.1% to 1.325. Emerging market currencies faced pressure, with the USD strengthening 0.5% against a basket including the Brazilian real and Turkish lira.

Commodities rallied on supply disruption fears. Brent crude climbed 9% to $79.42 per barrel, and WTI rose 8.6% to $72.61. Gold advanced 1.4% to $5,350 per ounce, while silver jumped 7.5% to $94.25. Natural gas prices increased 2.1% to $3.45 per MMBtu, reflecting broader energy sector gains.

Macroeconomic data provided limited new signals. January's Producer Price Index rose 0.5%, exceeding the 0.3% expectation, with core PPI up 0.8%. This follows December's 2.7% headline CPI, underscoring persistent price pressures. No major U.S. releases occurred on Friday, but global PMI data showed China's manufacturing index at 50.2, indicating slight expansion.

Geopolitical events dominated flows, with the U.S. vowing continued strikes on Iran amid nuclear talks set to resume. This added to January's tensions, including U.S. actions in Venezuela and NATO disputes over Greenland, which had already boosted precious metals earlier in the year. Bitcoin fell to $65,600, down from $68,200 highs, as risk assets retreated.

The Shanghai Composite ended nearly unchanged. The Euro Stoxx 50 posted modest gains. European government bond yields moved in line with U.S. Treasuries.

Currency markets across major economies remained calm with no significant shifts in cross rates.

Key reference levels for March 2 open:

Markets open with elevated energy prices, compressed yields, firmer precious metals, and equity futures pointing modestly lower.